Renewable Energy Certificate (REC)

Introduction

Renewable Energy Certificate is a market based instrument which enables the obligated entities to meet their Renewable Purchase Obligation (RPO). Pertinently, the RPO is the obligation mandated by the SERC under the Electricity Act, to purchase a minimum level of renewable energy out of the total consumption in the area of a distribution licensee. The REC mechanism also aims at encouraging competition and eventually mainstreaming renewable energy sources

Renewable Energy Certificates (RECs), also known as Renewable Electricity Certificates, Green tags, Tradable Renewable Certificates (TRCs) or Renewable Energy Credits, are tradable, non-tangible energy commodities  that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource.

In an attempt to boost renewable energy production in the country, India on 19th Nov. 2010 launched the Renewable Energy Certificate (REC) mechanism.

The REC mechanism also aims at encouraging competition and eventually mainstreaming renewable energy sources across the nation.

Background

A large part of India’s renewable energy potential is concentrated in few states in the country and some of these states have already achieved comparatively high levels of renewable electricity purchase as share of their total electricity consumption. After having met their Renewable Purchase Obligation (RPO), these states are now mostly reluctant to buy energy from renewable sources after having met their RPO as mandated by the State Electricity Regulatory Commission (SERC). This is hampering the growth of the renewable sector in an upward manner since the electricity from renewable energy is at present more expensive than conventional electricity.

States who have already fulfilled the required RPO mandate are therefore not willing to invest more in renewable based electricity any further. For example, Tamil Nadu has more than 10% of total electricity from renewable sources of energy but still has untapped wind energy potential. On the other hand, states like Bihar and Delhi have very little RPO but are required, by the National Electricity Policy (NEC), to enhance the share of renewable electricity in their total electricity consumption.

To address this mismatch, the Electricity Regulatory Commissions have collectively evolved a Renewable Energy Certificate (REC) mechanism under which when Renewable Energy is generated (solar, wind, biomass, etc), the energy is divided into two components – the physical commodity electricity and a tradable certificate, which is the Renewable Energy Certificate(REC). The schematic is given below.

The commodity electricity is sold to the distribution company/utility(or any user) at a mutually agreed tariff while the REC can be traded in the exchange. As mentioned earlier, the utility companies can make up for their shortfall in meeting the RPO targets by buying the RECs from the exchange.

Regulatory Framework

The Electricity Act 2003 has specific provisions for development of Renewable Energy Sources. Section 86(1)(e) and Section 61(h) are key sections providing promotional measures for RE. Several Regulators have determined ‘‘Feed-in’’ tariffs form purchase of renewable energy by distribution licensees. More than 20 Regulators have also determined percentage of energy to be procured by distribution licensees from renewable energy sources. These percentages popularly referred to as RPS or Section 86(1)(e) obligation have proved successful for promotion of RE in India.

Section 86(1)(e):(Functions of State Commission): promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee.

Section 61(h) (Tariff regulations): the promotion of co-generation and generation of electricity from renewable sources of energy.

 

Highlights of REC

Given below are some highlights of the RECs

  • Operational framework for REC Mechanism:

  • Procedure for Application of Issuance of Renewable Energy Certificate:



  • The denomination of each REC is 1 MWh( 1 REC = 1000 units(kWh) of electricity generated). In other words, the electricity producer can sell 1 REC for every 1000 units of electricity generated.
  • The REC is divided into two types
    • Solar REC
    • Non-solar REC
    • The RECs are valid for 365 days from the date of issuance of the certificate There will also be compliance auditors to ensure compliance of the requirements of REC by the participants of the scheme.
    • Voluntary Purchasers like NGOs, the Corporate Sector, Individual Purchasers etc. may also purchase REC in order to meet their Corporate Social Responsibility or to support the environment
    • There is a range in which the RECs can be traded. This range is different for the Solar and Non-solar REC. The details are given below.
Solar REC Non-Solar REC
Forbearance(Maximum) price Rs. 17,000/REC Rs. 3,900/REC
Floor(Minimum) price Rs. 12,000/REC Rs. 1500/REC

More details can be found at http://www.iexindia.com/REC/REC_Brochure.pdf

  • Power exchanges

In India, the trading of RECs has started in two exchanges – Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL).

IEX, based in New Delhi, started the REC trading on 23rd February, 2011.  IEX received a total buy bid of 125 Non-Solar REC and 11 Solar REC on the first trading session. However, since the first set of RECs were issued only in March 2001 and hence no bids for selling RECs were available, there was no trading on IEX at the time of the launch of operations in February 2011.

PXIL, based in Mumbai, started trading of RECs on 30th March 2011.

  • Price quoted and volumes

A total of 532 RECs were issued in March 2011 by the central nodal agency NLDC(National Load Dispatch Centre). Out of this 532RECs, 424 were sold at the exchanges on 30th March 2011. The details are given in the table below.

Non-solar REC Solar REC
Total Buy Bids Total Sell Bids Trade Volume Purchase Price/REC Trade Volume Purchase Price
IEX 10,000+ 150 150 Rs.3900 0
PXIL 3600+ 274 Rs.2225 0
Total 424 0

Please note that the Purchase Price/REC at IEX was the forbearance (Maximum) price offered.

More details on

i. IEX trading http://www.iexindia.com/REC_March.pdf

ii. PXIL tradinghttp://www.powerexindia.com/PXIL/captcha.aspx?filename=20110331_104750_REC_launch_Muhurat_trading_30March2011.pdf


REC Potential Application in Indian Context

  • In India, with the rising demand for power and the depleting energy resources for power generation, Renewable Energy Certificates (REC) are set to bring about a paradigm shift in the way the renewable based electricity would be promoted in future. It would prove to be a market-based instrument to promote renewable energy and facilitate renewable energy portfolio obligations which can make the renewable electricity market stable and predictable by maximizing the benefits of renewable generation while reducing costs.
  • Besides, introduction of tradable REC could provide one additional source of revenue to the RES based power generators and these could also be used by those states, which do not have substantial RE resources, to meet their RPO.
  • There is an uneven distribution of renewable energy potential in the country, certain states are generating high percentage of electricity from renewable sources while others are not procuring even a minimum percentage; resulting in uneven tariff burden on consumers across the country. A REC system could help offset, to a certain extent, this anomaly.
  • REC Mechanisms enable market growth and improve the commercial viability of the RE electricity. REC measures can provide a greater push to RE electricity by way of removing the bottlenecks like higher costs, uneven distribution of RE resources across India, and scheduling or despatchability of RE electricity, in procurement of RE electricity by utilities.
  • REC’s mechanisms merit considerations, and has been used extensively as a successful market based policy instrument to promote renewables in many countries and which would be relevant in the current legal and regulatory set-up of the Indian Power sector for facilitating compliance with RPO/RPS. The ministry of new and renewable energy is conducting a feasibility study for introducing renewable energy certificates. “One certificate will be equal to 1 MW he of renewable energy generated. The certificates can be traded to meet the mandatory targets of renewable energy purchase.
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SUMIT KUMAR

Executive at India Electron Exchange

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1 Response

  1. Kalpesh Ramjiyani says:

    Thank you for providing such an useful and accurate insights of INDIAN Power Sector and REC.

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